Draghi: Europe needs more bank safeguards

FRANKFURT, Germany (AP) -- The head of the European Central Bank says EU leaders must move forward and set up an authority to clean up failed banks in a way that doesn't leave taxpayers stuck with the bill.

Draghi said Monday that's the next important step after European Union leaders agreed last week to put the ECB in charge of overseeing banks as the bloc's single supervisor.

The top central banker for the 17 EU countries that use the euro sought to discourage the idea that a bank cleanup fund would itself require a lot of money from taxpayers.

“It's not a bailout fund,” Draghi said in an appearance before the European Parliament's economic and monetary affairs committee.

Any funding given to the cleanup authority would be to cover “limited, well-defined expenses” that are required to finance a dead bank's breakup or restructuring.

European leaders are trying to create EU-wide banking supervision and backstops to keep bank failures from wiping out government finances, as happened in bailed-out Ireland and threatened to happen in Spain.

The link between troubled banks and governments has been a hallmark of Europe's debt crisis. Governments are tempted to bail out banks, because of their key role in keeping the economy going. But the bailout costs in turn can burden government finances. The mere threat that they might has made it difficult for Spain to borrow money affordably, for example.

As supervisor, the ECB could remove a bank's license and sanction it for breaking rules. The resolution authority could go further and force losses on bank shareholders and creditors before tapping taxpayers' money.

“A single resolution mechanism is very important because it allows us to cope with bank failures, which may well happen, in a way that does not force us to use taxpayer money, and at the same time it does not destroy major parts of the payments system,” Draghi said.

The ECB's role as supervisor must first be approved in the EU parliament; leaders have not agreed on a proposal for a cleanup authority, but are due to take up the issue next year.